Update - Goldman's $500 Million Controversy

There were quite a few articles over the weekend that addressed Goldman Sachs' 10,000 Small Businesses program and the backlash that it has induced. Below, I've summarized a few that I found particularly interesting.

Before we turn to the articles, though, I want to point out one thing. I noticed an important line in a Financial Times article, which said, "Goldman stressed that the small business drive had been planned for a year." I'm not sure if or how that changes the discussion of whether this is a good strategic CSR initiative, but it's a useful piece of information to add into the conversation.

$500 Million is just "Crumbs from its (Goldman's) table."
The New York Times published an editorial entitled "Goldman's Non-Apology". The editorial criticizes what it argues are Goldman's contributions to causing the current recession, as well as what it sees as Goldman's unwillingness to acknowledge that it needed the government's bail-out money and that it thus isn't true that "taxpayer dollars have not helped to generate its post-crash profits." The piece goes on to address the 10,000 Small Businesses program, calling the $500 million pledge "crumbs from its table". It says, "It is hard to take seriously Goldman's claim that the program was not motivated by its public relations problems. The money will be welcomed by the recipients, but if Goldman wants to make a meaningful contribution, it would have to be in the billions and aimed more directly at taxpayers." Instead, the editorial suggests, Goldman should make "A multibillion-dollar gift to the federal Bureau of the Public Debt, which accepts tax-deductible donations to reduce the national debt."

Goldman's recent "exercise is so sequenced and packaged that it's bound to come across as disingenuous", but ultimately, the company "exists solely to make profits for its employees and shareholders."
The Wall Street Journal blog Mean Street, written by Evan Newmark, takes a very different stance, in a post entitled "Mean Street: Don't Apologize for Anything, Goldman Sachs". According to Newmark, the reason the general public is angry at Goldman is simple: "In an economy full of losers, everyone is fixated on hating the winner." He goes on to argue that the 10,000 Small Businesses initiative, along with Lloyd Blankfien's apology (quoted in the NYTimes editorial, if you want to see the exact language), "...is so sequenced and packaged that it's bound to come across as disingenuous, even deeply cynical." However, ultimately, Newman thinks that the public is coming down too hard on Goldman: "And here's the really unfortunate aspect of your current predicament: it's undeserved. Sure, there was some clumsy PR out of Goldman over the past year. But I still can't figure out why and to whom you're apologizing." Furthermore, he says, "...you're apologizing because nobody can handle the real truth: Goldman Sachs exists solely to make profits for its employees and shareholders. The rest is just PR."

"The bankers may have to give up more yet - and not only by writing a check."
A separate article New York Times article - "Wall Street's Spin Game," by Graham Bowley - gives Goldman Sachs advice on how to confront its current public relations challenges (which go beyond the Small Businesses initiative). Among the tactics he recommends is, "Give Back Some Money." However, he warns, "...there is the risk that such a strategy will be seen as a transparent ploy to buy off public opinion. Goldman's donation was only about 3 percent of the $16.7 billion the bank has so far set aside this year for its bonus pool. The bankers may have to give up more yet — and not only by writing a check." Instead, he advises (quoting Howard J. Rubenstein, president of communications firm Rubenstein Associates), the company should make it "mandatory" for its "brilliant staff" to volunteer in ways that have "real impact". (It's not particularly relevant here, but I really liked the advice to "Show you create real products that benefit people." Actually, that is relevant - ultimately, isn't CSR broadly about creating real value for the general public, that is, creating products (or services, or donations, or business processes) that benefit people?)

"As hedging strategies go, this remains far from sure to work."
The Financial Times suggests looking past the immediate controversy and into the future, with an article by Gillian Tett entitled, "Can today's philanthropy fend off future bank-bashing?" The article asks, "What exactly was going through the brain of Lloyd Blankfein, head of Goldman Sachs, this week when the bank announced a $500m initiative to help small American businesses?" Tett argues that, while making "an effort to quell the current bank-bashing" might be part of the company's reasoning, "Goldman, is (in)famous for trying to be ahead of the curve. And the really interesting political economy issue that haunts finance now, is not the attacks that Goldman (and other banks) have suffered in 2009 - but the question of what could await them in 2010, 2011, 2012 or beyond." The article suggests that, if the economic situation gets worse instead of better, we could see far greater public outrage. In this context, "Can Goldman's $500m programme protect the bank against that political risk? On paper, the target of its largesse certainly looks politically savvy: small business funding is a huge political headache in the US right now, due to its link with unemployment." However, Tett goes on to say, "...the grim fact remains that $500m is still just 3 per cent of the bank's bonus pool - and even a non-banker can see that is a small sum. As hedging strategies go, this remains far from sure to work."

"Goldman's wholesale focus…does not suit retail diplomacy."
A second Financial Times article, while focusing on the various problems threatening Goldman's reputation (its "most precious asset"), raises a very interesting question about its philanthropic efforts: "One difficulty is that Goldman's wholesale focus means little business contact with an angry public – it does not suit retail diplomacy. Even well-designed charitable initiatives, then, risk being misinterpreted." The article doesn't elaborate much on this idea, so I'm not completely sure where the authors are going with it, but I think this is a really interesting comment. It's true that the vast majority of people don't really know what Goldman Sachs does, not in the way that we know what, say, Wal-Mart, or Disney, or Bank of America do. (This relates to the advice in the NYTimes article referenced above, "Wall Street's Spin Game".) We interact with the latter companies' products and services every day, but hardly any of us interact with Goldman. As such, is it possible for the general public to have a relationship with the company, and is such a relationship critical to our ability to trust them? This is important because, as I discussed in my last post about Goldman Sachs, while CSR initiatives may build trust, they need to be built on a baseline of pre-existing trust, or people might not trust the activities or might see them as disingenuous. So, what does this mean for business-to-business companies? Are there other ways they can create that baseline of trust, or, as this FT article suggests, are they simply not suited for "retail diplomacy"?

I'm interested in looking at other instances in which a corporate philanthropy commitment has been met at least in part with negative feedback - I think isolating what doesn't work would help us to better understand what does. If you know of any good examples, I'd really appreciate hearing them.


Thanks!

Goldman’s $500 Million Controversy

Goldman just made a big charitable commitment - and stirred up quite a bit of controversy. Did the company design or execute the program poorly? Are its critics being unreasonable? In this post, I examine the program and some of the reactions to it, consider what could be going wrong, and summarize the analysis of several experts in a recent discussion of the issue in the New York Times. What's your take?

Last week, I wrote about the Goldman Sachs Foundation and the company's employee giving activities. In that post, I postulated that the company was using philanthropy in part to mitigate widespread discomfort (too weak a word?) with its large employee bonuses. I also complained about comments like the following statement from a 2007 New York Times article about one of the firms' giving vehicles: "Cynics who have watched the wealth creation at Goldman might think that the program is little more than a public relations effort to mask the gigantic bonuses it is expected to pay out starting in early December…" Instead, I argued, "I don't think that's cynical at all, though, nor do I think it takes anything away from the firms' - or its partners' - philanthropy. If the company is recognizing a risk, and utilizing philanthropy as one of the tools it uses to minimize that risk, that's good strategic corporate philanthropy."

Based on general reactions to one news story this week, though, it looks like a lot of people disagree with me! This week, Goldman announced a $500 million commitment to a new "10,000 Small Businesses" program. According to an article that appeared on the New York Times website on November 17, the company will "provide $200 million to pay for small-business owners to get business and management education at local community colleges and other places," offer $300 million of grants and small loans to small businesses, and also provide mentoring (by employee volunteers) and networking opportunities to these same small-small business owners. Yesterday, an article in the Wall Street Journal gave slightly more detail, stating that $250 million of the total would be distributed as loans, with an equal quantity in grants. Warren Buffet and Michael Porter (HBS professor, major contributor to the field of strategy, founder of a nonprofit that fosters entrepreneurship and economic development in inner cities) are among the effort's advisers. The company's own discussion of the initiative is here.

 Theoretically, this program makes a lot of sense as a strategic philanthropy effort. Currently, one of Goldman's major problems is that, as the New York Times put it, "it has become a punching bag for an industry that is seen by many to have benefited unfairly from billions in taxpayer dollars." People are angry that the government bailed out the financial sector, and now Goldman's employees, according to the same article, has earmarked $16.7 billion "so far" this year for employee pay. Meanwhile, unemployment remains high and the general public hasn't seen the end of this recession.

As a result, it makes sense that Goldman is investing in an effort that, if successful, is presumably designed to stimulate economic growth, from the bottom up. It is investing in small businesses, providing two resources that it has in abundance - cash and employee talent - to a population that could utilize those two resources to grow, creating social benefit. There is a direct connection between the problem Goldman faces (anger over its unequal share of the wealth) and the solution it is offering (creating a program to generate more wealth for the people who currently have a smaller piece of the pie), and it is utilizing resources that it has unique access to in order to provide that solution.

Simple, right? Um, apparently not, if the 97 comments (as of the time of this post) reacting to the Wall Street Journal article are any indication. While Goldman certainly has its defenders among WSJ commenters, responses like these were common (the commenter's name follows the quote):

• "The 500 million would be pro rata 2.5% of their annual bonus this year, which is cheap buy-out for the public opinions…" (JAMES DREITO)
• "The amazing part is these Goldman "masters of the universe" think we are all that stupid that we will fall for this not so subtle act of contrition...it sure must be nice to own both political parties and get away with anything and everything." (John McIlvenna)
• "Goldman's actions are sickening. After STEALING tens of billions of dollars from the US taxpayer, Goldman is now insulting America with this cheap trick. Goldman Sachs must be destroyed before it destroys the US." (Peter Marlow)
• "What a crock. A despicable move by Goldman to appease the masses. My bet is less than 10% of the "500 million" is ever distributed. Certainly less than $50 miliion (SIC) will ever be actually given away. Who are these creeps kidding? Endless pox on them." (Michael Smith)
• "Wow, how generous of the crooks who helped create a financial meltdown, then took $64 Billion in tax payer money to make themselves whole only to pay the people who caused this billions in bonuses. It now makes sense that they should get some good Public Relations from our money and ....another tax break for handing out charity to us poor folk west of the Hudson." (TOM OKEEFE)
• "Blood money." (Dirk Dreux)

So what did Goldman do wrong? I can think of a few possible issues (but I feel like these ideas could use some sharpening or refinement, and I'd love your thoughts on how to do so):

• Corporate philanthropy, and CSR more broadly, can definitely help mitigate reputational and other types of risk, but it doesn't cause other acts that people judge negatively to go away. In fact, if the CSR activity seems hypocritical, people tend to react really negatively. Is that what's going on here? The fact that many commenters (and journalists) brought up a recent quote by the Goldman CEO, where he claimed that the firm is "doing God's work", suggests that this is a factor.
• CSR can certainly promote trust, but maybe companies need a baseline of trust that is built through their general business activities. Otherwise, you get reactions like the ones revealed in some of the comments quoted above, with people questioning whether the company can be trusted to carry out the program as promised.
• While I still believe that PR (and other business) benefits are a legitimate motivation for CSR, really good business benefits most often (though not always) come from a program's outputs and results, not just the inputs. That is, Goldman is likely to get real credit if and when it can show that it's donation has promoted economic growth. A good illustration of this viewpoint comes when the New York Times article quotes Andrew Stern, president of the Service Employees International Union, regarding his thoughts on the Goldman commitment: "It's a down payment, a step forward and hopefully a precursor of a different discussion — in the long run, how do we build an economy where everyone can share in the success?" he said. "But if this is an isolated public relations activity, it's insufficient."
• Or maybe I'm just in the minority, and the majority of people believe that corporate philanthropy should not benefit the business, and the companies should carry out philanthropic activities because "it's the right thing to do".

Today, the New York Times, in its Room for Debate section, tried to hash out some of these questions. It asked, "Does the firm have an obligation to make philanthropic efforts, given that it benefited from the federal support? How can the most be made of this opportunity? Should Goldman be committing more than $500 million, based on its bottom line?" It pulled together a great panel to weigh in on the matter, including:

• Matthew Bishop and Michael Green, "Philanthrocapitalism"
• Robert Johnson, economist
• Nicole Gelinas, Manhattan Institute
• Nomi Prins, senior fellow, Demos
• Peter Firestein, author
• Charles Best, DonorsChoose.org

Bishop and Green reacted similarly to Andrew Stern. They argue, "If this announcement is the first of many acknowledgments by the leading lights of the finance world that the winners in our economic system have a responsibility to ensure that the benefits are spread throughout society, then Goldman C.E.O. Lloyd Blankfein's recent claim that the firm is "doing God's work" may not be so ridiculous."

Johnson focuses not on the donation, but on what he sees as the structural problems that made it possible: "...Goldman Sachs would not have that $500 million of spiritual bounty to distribute if it weren't for the U.S. taxpayers. Charitable giving is nice, but we can't take our eye off the ball when it comes to the need to repair our structure of government and address the undue influence of Goldman Sachs and the other powerful financial sector firms." In other words, in his view, the philanthropic program does not address the root problem.

Gelinas is concerned that Goldman's efforts will be too successful as a PR initiative, particularly among politicians. She argues, "That is, Goldman makes tons of money thanks to an implicit taxpayer "too-big-to-fail" subsidy, and it will give a little bit of that money back in ways that please important political constituencies like the National Federation of Independent Business on the right and the National Urban League on the left, each of which will help the firm with its small-business undertaking. Because it sweetens too-big-to-fail politically, the charitable initiative is bad for the economy and society."

Along somewhat similar lines, Prins suggests that the target audience for this initiative - not in terms of beneficiaries, but in terms of whom Goldman is looking to influence - is not in fact the general public, but the government: "Mr. Blankfein missed the opportunity to be genuinely concerned about the little people about a year and a bailout ago. So he's sacrificing a $500 million pawn and by doing so, he may placate the government — a more necessary a task to him than being universally loved."

Firestein's argument draws on two of the theories I laid out above, including both the idea that the public will reject perceived hypocrisy and that a baseline of trust is required before companies can use social engagement to augment that attribute. He says, "It's a lot of money (to anyone but Goldman) but it does nothing to convey a change in the bank's attitude toward the society around it." Furthermore, he argues, "That Goldman has allowed its reputation to sink so low as to make half a billion seem like a token causes damage far beyond the bank itself. It may undermine public sentiment toward truly needed financial entities for a long time to come."

Finally, Best shares his ideas for how Goldman could improve the execution of this project. He also shares his own experience as the recipient of Goldman funding: "I know from personal experience what Goldman Sachs funding can do for a small enterprise." In this way, though not explicitly, he draws on the idea that results are important, holding up Goldman's success in helping him as evidence that perhaps they can do this well, too.

What do you think? Are Goldman's critics being unreasonable? Is the company's corporate philanthropy strategy a poor solution for the problem the company is trying to address, or has it done a poor job executing this strategy? Do motives matter, and if not, where does hypocrisy come in? Or does this situation reveal that there are simply limits to the strategic benefits of corporate philanthropy?

CSR and Social Media

In the past month or so, it seems that conversations about the relationship between CSR and social media are everywhere. This obviously isn't a new topic, but it seems to have hit a new level of prominence. Here are some of the exciting articles and studies that have come out on this topic recently:

3BL Media CEO Greg Schneider explores the role of social media in CSR in a piece entitled "The 'Real -Time' of Social Media". He argues that companies must figure out how "...To communicate effectively in ways that a growing, "green-focused" audience, consisting of varied demographics, is responsive to and can trust." Social media tools, he advises, amount to "...new and different ways to reach an audience no longer receptive to traditional methods such as press releases." Furthermore, "...successful organizations have begun to realize that the value of delivering their messages, consistently in all different media formats, engages a passionate audience." I was particularly interested in his argument that companies should deliver their message "where they're (the consumers are) already spending Web time… Forget about the destination Web site. Game over."
 
Cross Border's IR Magazine reports on a study by Lundquist, a "strategic communication consultancy, specialising in online corporate communications". According to IR Magazine, the study "finds that while disclosure of information is usually of a high standard in CSR reporting, communication and interactivity are lacking". The article goes on to say, "The most damning result of this one-way system is that 'companies are publishing a lot of good news and avoiding the hard (sometimes uncomfortable) facts that stakeholders need if they are to judge how well a company is performing in non-financial matters,' states the report." The is particularly problematic because, "As the report points out, the internet has brought about higher expectations for corporate response." The IR Magazine article is here, while the Lundquist report is here. Jo Confino of the Guardian reacted to the study here.

In CSRWire, Bill Baue of Sea Change Media wrote an article entitled, "Corporate Social Responsibility + Social Media = Power of Transformation". He is working with Marcy Murningham and Bob Massie on a research project for the Harvard Kennedy School's Corporate Social Responsibility Initiative, about Web 2.0 and corporate accountability. In the post, he talks about his experiences at several recent conferences and the connection between those events and the theme of CSR and Web 2.0. I was particularly intrigued by the following statement: "The week's takeaways: web 2.0 holds great promise to transform the way companies engage with stakeholders, but we are still way early in the innovation curve on using web 2.0 to advance corporate sustainability and accountability!" It sounds as though he's distinguishing between the use of social media as a tool to talk about CSR and the use of social media to actually advance one's CSR activities - I think that's an important distinction, and it's one that can be easy to forget about.

In Mashable, one of my favorite sources of news on social media, Melissa Jun Rowley wrote an article entitled, "Why Social Media Is Vital to Corporate Social Responsibility". So many good quotes!

• "The result of things like the current economic climate and recognition of global climate change, society is starting to push past awareness and into action." (Reminds me of the move fromWeb 1.0 to 2.0)
• "…The standard for CSR is being redefined and is evolving as a driver of innovation."
• "There was a time when companies issued press releases, and operated under the impression that they controlled the message of their brand. Those days are gone. Today, the brand image is linked to the thoughts and conversations of a company's consumers. Therefore, businesses must get to know their constituents."
• "Absolute transparency, no holds barred, is key."
• "When consumers are treated as citizens, they can do everything from helping a company amplify its voice, to voting on the style of a new product, to improving a service."

Cone has released the results of its 2009 Consumer New Media Study. You can download the findings here. Among the intriguing conclusions:

• "Almost 80 percent (78%) of new media users interact with companies or brands via new media sites and tools, an increase of 32 percent from 2008 (59%)." (What an opportunity this is for companies to build meaningful relationships with their consumers!)
• Of course, this new opportunity comes with increased responsibility: "New media users overwhelmingly believe companies or brands should not only have a presence in new media (95%) but also interact with their consumers (89%)." (This is consistent with Lundquist's conclusion that people expect increased responsiveness from companies in this internet age.)
• "Forty-four percent of American new media users are searching for, sharing or discussing information about corporate responsibility (CR) efforts and programs..."
• "Sixty-two percent of users polled believe they can influence business decisions by voicing opinions via new media channels. " (I love this stat!! I think this connects back to Melissa Jun Rowley's statements about treating consumers as citizens, quoted just above - is there something big here?) 

Of course, if you're interested in this topic, you're probably already familiar with Justmeans, which, among other things, helps companies "Syndicate (their) good work to multiple social networks with Justmeans" in order to "Attract and ignite advocates for better business". Justmeans recently put on the Social Media for Sustainability conference. Bill Baue talks about the event in the CSRWire article discussed previously in this post. If anyone else attended and can share some of the highlights, or knows where presentations or videos might be posted, please share!

I'm very curious to see where this is going. If you see great examples of how companies are using social media as part of their CSR efforts, or if you have thoughts on the key themes that run through these activities, I'd love to hear more.

The New York Times on the Goldman Sachs Foundation, or WHY Can't We Acknowledge that CSR is Good for a Company??

The New York Times just posted to its website an article about the Goldman Sachs Foundation's most recent tax filing. The Goldman Sachs Foundation is interesting because it holds significant assets, like a private foundation. My understanding (I don't have the statistics to back this up, anyone know for sure?) is that many/most company foundations are pass-through entities ,with the company donating the next year's budget at the beginning of that year. As a result, as the Foundation's tax filing contains information about how its assets were managed, the article reports that it "...provides a glimpse of the legendary trading that has helped put the firm on track for its best year ever."

The article goes on to discuss what the reporter seems to see as Goldman's use of corporate philanthropy as a reputation management tool: "Given the firm’s anticipated profits and supersize bonuses, which have touched off public furor, it is no surprise that Goldman said recently it would increase its charitable giving. It has set aside $200 million to nearly double the size of its main foundation."

Interestingly, this article about the company's foundation also discusses giving by its executives. "After Mr. Whitehead (that's former co-chairman John C. Whitehead) challenged the firm to do more, it created a donor-advised fund that it hoped would reach $1 billion over a few years. The fund allows the firm’s 400 partners to put aside money for the charities of their choice." I know that companies often report on employee giving as part of their overall philanthropic efforts, but this isn't your typical employee giving campaign. While the company did make its own donation to the Goldman Sachs Charitable Gift Fund, it (like any donor-advised fund) primarily facilitates giving by the donors (to "the charities of their choice").

At first glance, this is a bit random - what interest does Goldman have in its partners' personal philanthropy? However, one of the big strategic issues that Goldman seems to be facing these days is managing its reputation in the face of that "public furor" over "supersize bonuses". As such, it makes a lot of sense that the firm would want to encourage and promote charitable giving funded by those bonuses. Actually, it's even more interesting given that the Fund predates the crises, or at least the worst of it, which suggests this is a relatively long-term concern for Goldman Sachs.

Here's an article about the creation of the Fund - though the article calls it by a different name, GS Gives - from November 2007. One interesting line from that article, in light of my above analysis: "Cynics who have watched the wealth creation at Goldman might think that the program is little more than a public relations effort to mask the gigantic bonuses it is expected to pay out starting in early December (to be paid next year). But few want to discourage charitable efforts. " I don't think that's cynical at all, though, nor do I think it takes anything away from the firms' - or its partners' - philanthropy. If the company is recognizing a risk, and utilizing philanthropy as one of the tools it uses to minimize that risk, that's good strategic corporate philanthropy.

It doesn't surprise me that some would see such activity (if that's even Goldman's intent, I could be assigning them motives that aren't there) as self-serving. However, I believe that it's only when we maximize the positive impact that CSR (including corporate philanthropy) can have on companies will we be able to maximize the resources that companies invest in CSR. As such, I WANT to see companies connecting their CSR efforts to public relations or any of the many other business needs that CSR can help serve. However, I often see comments like the one in the 2007 article, suggesting that there is something wrong with a company that seeks to use CSR as a tool to meet its business goals. Similarly (and probably because of those comments), I SO OFTEN hear CSR executives lay out some great, strategic ways in which their CSR activities fit into the larger business, but then say that the company really only gets involved in CSR because it's "the right thing to do". It may or may not be the right thing to do - I'd just as soon avoid Milton Friedman this late at night - but we WILL NOT achieve CSR's full potential if that's the best reason we can give for engaging in corporate social responsibility.

But how in the world do we get past this issue?? Please, if you have any thoughts or ideas on this, share them in the comment section below.

News Update: Environment

A couple of articles on CSR have caught my eye recently:

• "Everybody in the Pool of Green Innovation" - Over the weekend, the New York Times published an article looking at communication and collaboration among companies seeking to improve their environmental performance. In particular, the article talks about companies that donate patents for environmentally-responsible products, processes, etc. to the public commons.
  

• "With New Care Tags, Levi Strauss Aims to Reduce Its Footprint" - Interesting way to manage product lifecycle concerns - according to the New York Times, "The company will soon sew revamped tags into all of its clothing that instruct people to donate items when they are no longer needed." The tags will also recommend washing practices (cold wash, line dry) that conserve energy .
  
  

It's interesting that, in both cases, the CSR activities don't necessarily require a major investment by the company. The donated patents, for instance, are primarily patents that aren't especially strategic to the donor companies, so the donors don't get much value out of holding them close. By donating the patents to the public commons, the donor companies enable a range of other players to be more sustainable. Similarly, I don't think Levi Strauss is incurring any extra cost (beyond redesigning its labels, I suppose) by asking consumers to be more thoughtful about the environmental impact of their jeans - instead, as in the green innovation article, the company in question is making it more likely that an external party behave more responsibly. (Of course, these low-cost activities may be packaged with higher cost activities, like grants that seek to leverage their impact.)

These are great examples of companies indentifying CSR activities that are relatively cheap for them to carry out, but relatively high value for the community at large.